Why save so much for when you're old?

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imareal1
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Why save so much for when you're old?

Post by imareal1 » Fri May 05, 2017 1:36 pm

Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.

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Re: Why save so much for when you're old?

Post by LadyGeek » Fri May 05, 2017 1:49 pm

Welcome! How much do you think you need to live on when you're old?

You won't be working, so where will you get the money?

Say you need $40,000 / year and won't be working from 65 until you're 90. At 65 years old, you'll need to have put away $ 1 million (25 years * $40,000).

You put all your money in now, because it multiplies a lot quicker. Putting it in later won't have this advantage.

See the wiki: Importance of saving early

The section "What does it take to catch up if you start late?" is what you're missing.

If you want to live lavishly, create a budget and see how much you can afford. Be sure to include "saving for retirement" as a mandatory expense.
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Dutch
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Re: Why save so much for when you're old?

Post by Dutch » Fri May 05, 2017 1:50 pm

You're in control over your own life. If you don't see any justification for saving for retirement, then you shouldn't do it.

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Re: Why save so much for when you're old?

Post by EddyB » Fri May 05, 2017 1:55 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


Assuming there comes a point when you won't want to or be able to earn an income, but will still have expenses, how will you pay for those expenses? Necessarily by sacrificing some consumption in your working years (assuming no exogenous sources of money). It's as simple as that. The balance of how much to spend "now," how much to save for "later," is up to you. But having an informed view of your expenses at different stages of life, and understanding the effects of present savings on future consumption, seems like it's necessary to make a good decision.

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Re: Why save so much for when you're old?

Post by KlangFool » Fri May 05, 2017 1:56 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


imareal1,

Do you believe that you will be fully employed for the next 43 years continuously until 67 years old? What is the chance of that not happening? If you are permanently unemployed or under-employed before 67 years old, what are you going to live on?

I do not know your area, But, in my areas, many of my peers in the 40s and 50s are permanently under-employed or unemployed due to age discrimination.

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Re: Why save so much for when you're old?

Post by Fox » Fri May 05, 2017 1:56 pm

I don't want to be poor when I'm old and too tired to keep working.

I think the key is to not overwork yourself when you are young.

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Re: Why save so much for when you're old?

Post by ACM4297 » Fri May 05, 2017 1:57 pm

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Re: Why save so much for when you're old?

Post by Grt2bOutdoors » Fri May 05, 2017 1:57 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


An actuary would know the answer to these questions. What do your actuarial colleagues say about the chances of getting a career ending disability, death or illness that cuts short your ability to a) make more money and b) live life to the fullest when you are young?

Welcome to the forum! I look forward to hearing your response and further questions.
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Re: Why save so much for when you're old?

Post by flyingbison » Fri May 05, 2017 1:59 pm

I don't think you should save so much that you aren't enjoying your life now.

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Re: Why save so much for when you're old?

Post by MichaelRpdx » Fri May 05, 2017 1:59 pm

First of all, congratulations on starting saving at your age.

Note: you can touch your IRA and 401(k) at 59 1/2 without restrictions. Under some circumstances, you can access the funds much earlier. Two examples:
  • withdrawal of all contributions from a Roth IRA after it has been open for five years
  • a SEPP withdrawal program

When you're over 60 you'll want to do things - just not the same things you want to do in your 20s.

Consider broadening your portfolio into non-tax deferred accounts. Google up financial independence. Reading the blogs of Mr. Money Moustache, the Mad Fientist, and others of their ilk will provide multiple reasons for why saving enough to make employment optional is a rewarding activity.
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Re: Why save so much for when you're old?

Post by The Wizard » Fri May 05, 2017 2:05 pm

imareal1 wrote:... My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses...

Interesting concept.
I did quite a bit in my 20s and 30s due to saving only about 15% of salary at the time.
I did up my savings percentage in later years.
Now retired with more income than when working, so I should chill out?
Hmm, I'll ponder that idea...
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Re: Why save so much for when you're old?

Post by flamesabers » Fri May 05, 2017 2:05 pm

imareal1 wrote:I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


Saving money on taxes is one reason.

Another reason is unless you're planning on working until you die (assuming you're still physically capable of working at an old age) you'll need savings to live on when you're retired. Pensions are far and few between nowadays, and I think it's fair to assume social security by itself isn't enough to live on comfortably.

I don't think you should save so much that you're living miserably now, but I think you should take advantage of these tax-advantaged accounts, especially since you have a couple of decades until retirement. While I agree it's important to enjoy life in the present, I also think it's important to have financial security for your future.

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Re: Why save so much for when you're old?

Post by Tycoon » Fri May 05, 2017 2:10 pm

Compounding money over time would be a good reason.
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Re: Why save so much for when you're old

Post by delamer » Fri May 05, 2017 2:16 pm

I've been in my early 20's and I am now in my early 60's.

Yes, there are a few things that I can't do, or are more difficult to do, now relative to 40 years ago. But that is a long way from being ready to sit in a rocking chair and crochet all day. And if the people in their 60's who you know are like that, you are seeing an unrepresentative sample. Which is something that an actuary should understand.

Do things now that you enjoy, but don't assume that you won't be able to enjoy life in 40 years.

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Re: Why save so much for when you're old?

Post by imareal1 » Fri May 05, 2017 2:28 pm

I guess I just value the present a lot more than the future, especially since the future is not guaranteed, so saving for that period of time isn't appealing to me. I know...I'm the instant gratification kind of guy.

In the back of my mind, I'm well aware of most of the reasons you guys are giving me to save, and I agree. It seems I just have to finely tune my investment strategy to not sacrifice livelihood now.

My question now is...what's the general strategy to save for big ticket items like a car or a house?

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Re: Why save so much for when you're old?

Post by fortunefavored » Fri May 05, 2017 2:28 pm

I rarely post other than to ask questions, but this person's thread could literally be posted by 24 year old me.

I think 24-year-old-me was pretty smart, but foolish. Once you make "more than just making your rent" money, those dollars can be used on various things: savings, fancy cars, vacations, etc. I was smart enough to not rack up debt, but foolish not to invest.

What 24-year-old-me didn't get is you can easily do both. That's the awesome part about "discretionary" spending. Did 24 year old me need a $4000 TV? A $2000 TV would have given me 95% of the satisfaction. Same with cars. $50,000 car vs. $30,000 car. Both are a ridiculous purchases, but it's not like you're getting that much more additional enjoyment by spending 100% of your discretionary cash.

So, in short, assuming you actually do believe you will need some amount of money in retirement, I see no contradiction in lavish 20s and saving for the future (I did not start saving anything until my 30s, so yes, put me on the list of people who regret not starting earlier.)

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Re: Why save so much for when you're old?

Post by Meg77 » Fri May 05, 2017 2:32 pm

imareal1 wrote:...it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally.


I think this is where you are mistaken. If you begin to invest a relatively small amount for retirement now (say, 10% of your gross income), you should amass quite a fortune over 4 decades of working without much sacrifice and without even living frugally. You'll still have 90% of your income (less taxes) left to blow as you see fit, after all. If you'd rather retire in your 40s, you could choose to sacrifice more now and save aggressively instead - say 30-50% of your gross income. But traditional investment advice does not mandate that kind of "lifelong sacrifice" or frugality.

imareal1 wrote:My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...


Your perspective is limited to the very few years you have lived as an adult. I'm a decade older than you are, and I can assure you that I still enjoy adventures and lavish experiences. My friends in their 40s and 50s do too. My parents and in laws are in their 60s, very healthy, and have the financial freedom to travel the world and give freely to their kids and grandkids. If anything, your standards and needs will increase with age (I no longer have much tolerance for the cheap lodging, alcohol, or transportation methods that I enjoyed thoroughly in my 20s). It's easier to be frugal when you are young, fit and unencumbered.

Studies do show that spending actually decreases throughout retirement after an initial bump. As you hit your 70s, 80s and 90s people do tend to travel less, eat less, pay off mortgages, not need a car, and so on. Even increased healthcare expenses don't outweigh general spending declines, on average. But that's not a justification for not saving - it's a justification for perhaps adopting a higher withdrawal rate on your retirement portfolio which could enable you to retire earlier or with a lower portfolio balance.

imareal1 wrote:I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


For one thing, you can take Roth IRA contributions back out any time without taxes or penalty. So even if you retire early or end up wanting to use those funds for a home or other purchase before retirement, there's no excuse to not max out a Roth IRA. There are also several ways to legally access Traditional IRA balances prior to age 59.5, which you can Google. Under current law all retirement account balances are accessible at age 59.5 though. Barring tragedy, you may well live for 30+ more years after that, quite healthfully. My 87 year old grandmother is traveling to Europe this summer with two of her daughters. She'll be flying first class and enjoying all the best restaurants and hotels. I can assure you she does not regret the frugality she and her husband endured in their youth.
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Re: Why save so much for when you're old?

Post by NiceUnparticularMan » Fri May 05, 2017 2:35 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice... I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


Well, one point is obviously you might end up surprised how much energy and desire to live adventurously you might still have when you are older.

Another point is saving more might let you work less, aka retire early.

That said--sure, you should have a reasonable balance between enjoying life now and saving for the future.

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Re: Why save so much for when you're old?

Post by GoldenFinch » Fri May 05, 2017 2:36 pm

I'm 50 and I'm trying to remember being 24. That seems so long ago now. I was in grad school and didn't really save anything. In retrospect, saving then would have made my 30s easier when we had a bunch of little kids running around and a mortgage and wanted things for our kids and our house. When we did start saving for retirement we were behind so we had to make big sacrifices to catch up. That was no fun. Now we are all caught up, but I still wish I had saved more when I was young.

Compounding is the word that I think is important to remember. The nice thing about stockpiling when you are young is you are financially independent sooner and have more freedom. I have four kids and the two older ones (college age) already have Roth IRAs and save 10-20% of all the money they make for the distant future.

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Re: Why save so much for when you're old?

Post by corwin » Fri May 05, 2017 2:39 pm

Savings is not just for retirement. You could save aggressively for 3-5 years and then take a year off. I like this post: http://jlcollinsnh.com/2011/06/06/why-you-need-f-you-money/

I never wanted to deprive myself either but I wasted more money than I spent on making myself happy.

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Re: Why save so much for when you're old?

Post by DaftInvestor » Fri May 05, 2017 2:43 pm

imareal1 wrote:My question now is...what's the general strategy to save for big ticket items like a car or a house?


You might want to modify your original post and add this question in. People don't read all the responses and miss it when an OP comes back in with something additional. As you can see - most folks are still answering your original question.
My answer to this question: Set a goal and save towards it. If you are buying your first new car - few people pay cash and interest rates are still reasonable so you would probably want to finance a car - but BUY a reasonable one such that your monthly payment is easy to pay.
Similarly for your first home - figure out how much of a down payment you need and come up with a savings plan to get there.

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Re: Why save so much for when you're old?

Post by CantPassAgain » Fri May 05, 2017 2:44 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


Do you want to be 50 years old and forced to do actuarial work even though you hate it because you've been doing it for almost 30 years? Do you want to constantly stare layoffs straight in the face because there is a new crop of grads every year willing to come in at 7:00 am and work like crazy till 8:00 pm every day for way less money than you make? Trapped between doing a job you hate or forced to take a retail job at wall mart because no one else wants to hire a 50 year old burnout actuary? Then start saving now.

(Ok the outlook probably isn't that bad but this is reality for a good chunk of the middle aged and up workforce)

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Re: Why save so much for when you're old?

Post by NiceUnparticularMan » Fri May 05, 2017 2:46 pm

imareal1 wrote:I guess I just value the present a lot more than the future, especially since the future is not guaranteed, so saving for that period of time isn't appealing to me. I know...I'm the instant gratification kind of guy.


Certainly plenty of people are short-term thinkers in this sense. My experience is that long before retirement, longer-term thinking tends to start paying off in many notable ways, both if everything basically goes well and also if one or more things go poorly.

But who knows--maybe your experience will be different.

My question now is...what's the general strategy to save for big ticket items like a car or a house?


Well, you've got three basic options:

(A) Wait until you save up all the money;
(B) Buy using whatever debt someone will give you and hope it works out;
(C) Buy using debt but as part of a thoughtful long term financial plan.

I take it you aren't a fan of (C), so it is either (A) or (B) for you.

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Re: Why save so much for when you're old?

Post by DonCamillo » Fri May 05, 2017 2:46 pm

I think the most fundamental question for you is "What do I want out of life?" That may be a good place to start planning how much to spend and how much to save.

I grew up in a military family, and lived in Europe and Hawaii, among other places, when I was growing up. I developed a love of travel. In 1984, I decided to take my family of four to Zermatt Switzerland and Paris France. We knew it was a long term project, as I was earning about $25,000 a year then. We saved for seven years, and took a three week trip in the summer of 1991 that cost $12,000. By then, I was making $60,000 a year. Within another few years, my children were through college, and my wife and I were traveling internationally every year. In my corporate career, I had four weeks of vacation a year, but could not be away from my job more than about 10 days at a time. In my mid fifties, I became a college professor, and had winter, spring and summer breaks totaling 20 weeks a year. But I continued saving. For the past 20 years, I saved half of my income, finally retiring this year at the age of 71 1/2. Now we can travel freely, although we do not have the physical energy and strength of our younger years, and we spend our time touring and walking instead of skiing or climbing mountains. So far this year, we have already been to Mexico, Costa Rica, Panama, Nicaragua, Columbia and Aruba, plus a month-long US vacation. Next week, we fly to Norway, Poland, Latvia, Lithuania, Estonia, Finland and Iceland on a 41 day vacation. We have already booked another month long vacation to Portugal, Morocco, the Canary Islands and Saint Maarten for later in the year.

I would hope that you will be able to enjoy your life, both during your working years and afterwards, and that you do not have to choose between the present :sharebeer and the future. (That is a beer for now, and one for later!)
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Re: Why save so much for when you're old?

Post by NiceUnparticularMan » Fri May 05, 2017 2:49 pm

fortunefavored wrote:What 24-year-old-me didn't get is you can easily do both. That's the awesome part about "discretionary" spending. Did 24 year old me need a $4000 TV? A $2000 TV would have given me 95% of the satisfaction. Same with cars. $50,000 car vs. $30,000 car. Both are a ridiculous purchases, but it's not like you're getting that much more additional enjoyment by spending 100% of your discretionary cash.


As an aside, this is part of why having an employer take out the money before you even see it can help enormously. If you never even see it as discretionary money, you are far less likely to think of it as sacrifice. Of course if you weren't talking about luxuries but real necessities, that logic wouldn't apply.

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Re: Why save so much for when you're old?

Post by BogleMelon » Fri May 05, 2017 2:49 pm

Walking through stores, seeing a very old lady mopping the floor at Mcdonalds (while obviously she had a back issue), then another old man giving free samples at Costco while standing up on his feet for long hours, was enough to convince me to save for retirement.

And also this:
http://i66.tinypic.com/28qvhmq.jpg
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Re: Why save so much for when you're old?

Post by cjcerny » Fri May 05, 2017 2:49 pm

CantPassAgain wrote:
imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


Do you want to be 50 years old and forced to do actuarial work even though you hate it because you've been doing it for almost 30 years? Do you want to constantly stare layoffs straight in the face because there is a new crop of grads every year willing to come in at 7:00 am and work like crazy till 8:00 pm every day for way less money than you make? Trapped between doing a job you hate or forced to take a retail job at wall mart because no one else wants to hire a 50 year old burnout actuary? Then start saving now.

(Ok the outlook probably isn't that bad but this is reality for a good chunk of the middle aged and up workforce)


Yeah...this is the big reason for me. Not having to work until 70 or 75 or...gulp...death is a great motivator to save now. Having "F U" money saved makes working a whole lot easier lots of times.

I also don't feel as if I'm not "living" by not spending extravagantly. I can see a lot and do a lot in this life without having to do it extravagantly.
Last edited by cjcerny on Fri May 05, 2017 2:53 pm, edited 1 time in total.

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Re: Why save so much for when you're old?

Post by knpstr » Fri May 05, 2017 2:51 pm

Money can buy time or things.

You spend money to buy things.
You save money to buy time.

Money is nothing more than claim checks to use at your own discretion.

If you always spend what you save you must always work for everything you have.
If you invest your money will work for you to make more money.
People have been known to reach a critical mass where their money makes so much money for them they no longer have to work. In this way they bought themselves time to be able to enjoy life and spend money without having to work for it.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Why save so much for when you're old? Here's why.

Post by Taylor Larimore » Fri May 05, 2017 2:52 pm

imareal1:

Welcome to the Bogleheads Forum!
I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.

I am 93. Every Friday my two sons come by and drive me to lunch.

This morning we went to a very good but expensive restaurant: Joe's Stone Crab on Miami Beach. I was able to encourage them to order whatever they want. We had great conversations and a wonderful meal together!!

This is why I put "significant" money away when I had the chance. I can't think of a better reason.

Best wishes.
Taylor
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Re: Why save so much for when you're old?

Post by MrNewEngland » Fri May 05, 2017 2:53 pm

There's definitely a balance. I'm (quickly) approaching 40 and I am now seeing the compounding starting to add up so I do wish I had put more away when I was younger. But at the same time I have no regrets about doing any of the things I did or experiences I had. If anything I wish I did more... in fact the older I get the more likely I an to "just go for it" when any trip or adventure comes up.

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Re: Why save so much for when you're old? Here's why.

Post by MrNewEngland » Fri May 05, 2017 2:54 pm

Taylor Larimore wrote:

I am 93. Every Friday my two sons come by and drive me to lunch.

This morning we went to a very good but expensive restaurant: Joe's Stone Crab on Miami Beach. I was able to encourage them to order whatever they want. We had great conversations and a wonderful meal together!!

This is why I put "significant" money away when I had the chance. I can't think of a better reason.

Best wishes.
Taylor


I am so grateful that I found this forum and you are a big reason for that.

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Re: Why save so much for when you're old?

Post by willthrill81 » Fri May 05, 2017 2:58 pm

imareal1 wrote:My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses.


Welcome to the forum. :beer

My big question is why you think that living adventurously means spending all (or virtually all) of your income. Contrary to popular wisdom, spending money does not necessarily make you happy. You can live a fun lifestyle without necessarily spending 100% of your income.

This idea that spending will makes one happy is what has led millions of people down the path of financial ruin (i.e. huge credit card balances, upside-down mortgage, bankruptcy). That might not happen to you, but it's very likely to

Considering your age, I would recommend that you have 20% of your gross income saved and invested automatically (with a 401k, this is the norm) so that it's never in your checking account. If you don't see it, you won't miss it. Spend the rest as you want, with the caveat that you don't go into debt for anything except perhaps a home. I'll bet that you won't feel deprived one bit.
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Re: Why save so much for when you're old?

Post by imareal1 » Fri May 05, 2017 3:01 pm

Thanks for all the feedback. It seems like my perspective of middle/old age life is grimmer than what it is in reality. It's great to hear that people are able to find a balance and I'm super glad I'm starting to save already. Cheers.

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Re: Why save so much for when you're old?

Post by LadyGeek » Fri May 05, 2017 3:03 pm

imareal1 wrote:I guess I just value the present a lot more than the future, especially since the future is not guaranteed, so saving for that period of time isn't appealing to me. I know...I'm the instant gratification kind of guy.

In the back of my mind, I'm well aware of most of the reasons you guys are giving me to save, and I agree. It seems I just have to finely tune my investment strategy to not sacrifice livelihood now.

My question now is...what's the general strategy to save for big ticket items like a car or a house?

You're missing an important point - it's not an "all or nothing" deal. Just split what you think is a reasonable percentage to each category. For example:

- new car
- house
- retirement

What you need to learn is that the type of investment depends on when you need the money.

See the wiki: Financial planning "Implement the investment plan"

Wiki wrote:Investment goals. The investment objectives (what the money is for) and time horizon (when you will need it) define the securities used to create the investment portfolio. For example, when investing with a medium-term timeline you should not purchase a 5 year CD when you need the money in 3 years. [note 1]

Be sure to read the entire article.

If all of this is confusing, start here: Getting started

If you have any questions, just ask.
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Re: Why save so much for when you're old?

Post by gouverneur » Fri May 05, 2017 3:06 pm

To take a tack counter to conventional wisdom on this board -- since OP's 24, why shouldn't he spend to his fullest capacity (hopefully not getting into debt on top) for a few years and see how much he likes it? Or save a little bit, 5-10%, and spend more in youth? I do agree with the perspective that depriving oneself in one's 20s may be a mistake because never again will one have as much freedom from obligation (parents not yet too old, not yet obligated to care for children), as much physical vitality, and as much need to experience the broader world and its pleasures -- some of which cost a fair amount of money!

I'm also not a huge believer in people being able to change their attitude toward money or spending through other people's advice--some people want instant gratification, as the OP candidly admits, and I doubt he will be happy saving a high amount of his income. On the other hand, people who are naturally frugal have no problem following the advice of other frugal people to be frugal.

A modest amount of savings (5-10%) is perfectly fine for someone at the very beginning of his or her career. Perhaps experiencing a high consumption lifestyle will lead to a sense, after a few years, that there are other sources of happiness, and then he'll save more.

Until then, why not spend "lavishly" and see how much one likes it? While the ideal (and non-existent) rational person would save an optimal amount to ensure they capture the benefit of tax advantaged accounts, compounding, time value, etc., and ensure they save the least amount to get the maximum amount of retirement spending they desire, the reality is most of us take meandering paths to the end (and probably run into one or two big changes or unexpected events along the way). It seems to me that a period of "sowing his oats" could be a good thing.
Last edited by gouverneur on Fri May 05, 2017 3:08 pm, edited 1 time in total.

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Re: Why save so much for when you're old?

Post by FelixTheCat » Fri May 05, 2017 3:07 pm

Tycoon wrote:Compounding money over time would be a good reason.

+1

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Re: Why save so much for when you're old?

Post by Jags4186 » Fri May 05, 2017 3:10 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


You need to realize that at 24 you're still excited about work and being a grown up. I'm not that much older than you and I'm already over it.

Here are a few things to consider. At 24 you have few to no real responsibilities. You have to pay your rent and feed yourself. Maybe you have a student loan or not, but that's probably the most of your responsibilities. If you spend all of your money now, what happens when you have more responsibilities? House? Spouse? Children? Caring for elderly parents? If you are living at the edge now what happens when you need to direct that money elsewhere?

You need to save as much as possible when you are young so that you can back off when things are a little tighter and not have to worry about meeting your long term goals.

Believe me, you will blink and you will find yourself to be 34 years old, married, with a kid or kid on its way and the previous 10 years will have felt like a blur. Don't get caught up in living in the now.

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Re: Why save so much for when you're old?

Post by willthrill81 » Fri May 05, 2017 3:13 pm

gouverneur wrote:To take a tack counter to conventional wisdom on this board -- since OP's 24, why shouldn't he spend to his fullest capacity (hopefully not getting into debt on top) for a few years and see how much he likes it? Or save a little bit, 5-10%, and spend more in youth? I do agree with the perspective that depriving oneself in one's 20s may be a mistake because never again will one have as much freedom from obligation (parents not yet too old, not yet obligated to care for children), as much physical vitality, and as much need to experience the broader world and its pleasures -- some of which cost a fair amount of money!

I'm also not a huge believer in people being able to change their attitude toward money or spending through other people's advice--some people want instant gratification, as the OP candidly admits, and I doubt he will be happy saving a high amount of his income. On the other hand, people who are naturally frugal have no problem following the advice of other frugal people to be frugal.

A modest amount of savings (5-10%) is perfectly fine for someone at the very beginning of his or her career. Perhaps experiencing a high consumption lifestyle will lead to a sense, after a few years, that there are other sources of happiness, and then he'll save more.

Until then, why not spend "lavishly" and see how much one likes it? While the ideal (and non-existent) rational person would save an optimal amount to ensure they capture the benefit of tax advantaged accounts, compounding, time value, etc., and ensure they save the least amount to get the maximum amount of retirement spending they desire, the reality is most of us take meandering paths to the end (and probably run into one or two big changes or unexpected events along the way). It seems to me that a period of "sowing his oats" could be a good thing.


This line of reasoning is what has led millions of people to the 'retirement crisis' we are dealing with now. They spent everything they had when they were young, and now they literally cannot stop working. The median net worth of a 65-69 year old American is about $190k, including their home equity; that's 4-5 years of typical American spending. Many have been and will be forced to live on Social Security, which for many is just enough to keep them from starving and little more.

Living for the present without regard of the future is very, very dangerous.
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Re: Why save so much for when you're old?

Post by Pajamas » Fri May 05, 2017 3:25 pm

At 24 it is normal to be focused on the near and intermediate future, but at least acknowledge that your perspective may change. When you were four, your thoughts about the future were different than they are now. You certainly aren't the same person you were twenty years ago and you certainly won't be the same person in twice that or forty years in the future. Your vision of retirement may change as you get older. You may still have a spark of life left in you after 65 and you also may not want to have to live strictly on social security and the kindness of strangers.

You should also know that many types of retirement accounts allow withdrawals under some circumstances and with some conditions. It may not be the best idea to do so, but it certainly is possible.
Last edited by Pajamas on Fri May 05, 2017 3:32 pm, edited 2 times in total.

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Re: Why save so much for when you're old?

Post by Phineas J. Whoopee » Fri May 05, 2017 3:27 pm

If I may add, people who are old have a different image of themselves than do many who are young and dismiss them.

I am grateful to my younger self for making a set of financial decisions that have rendered my life easier, although not more luxurious, today. It's almost like receiving an inheritance, but nobody had to die in order for it to happen.

PJW

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Re: Why save so much for when you're old?

Post by greg24 » Fri May 05, 2017 3:31 pm

You're not the first 24 year old to think this way.

Go out and live the life you want for yourself.

But, as you age, and find yourself immersed in actuarial tables, your opinions may change.

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Re: Why save so much for when you're old?

Post by livesoft » Fri May 05, 2017 3:33 pm

imareal1 wrote:..., but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

No, absolutely not. The amount needed DOES NOT require a lifelong sacrifice of saving relentlessly and living frugally.

And please do not equate living adventurously with living lavishly.

What have you planned for your next vacation? I'm going wildnerness canoeing in a foreign country, so it won't be lavish.
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Re: Why save so much for when you're old?

Post by Inframan4712 » Fri May 05, 2017 3:35 pm

gouverneur wrote:
Until then, why not spend "lavishly" and see how much one likes it? While the ideal (and non-existent) rational person would save an optimal amount to ensure they capture the benefit of tax advantaged accounts, compounding, time value, etc., and ensure they save the least amount to get the maximum amount of retirement spending they desire, the reality is most of us take meandering paths to the end (and probably run into one or two big changes or unexpected events along the way). It seems to me that a period of "sowing his oats" could be a good thing.


Because of compounding, and possible periods of loss of income.

In my late 20s and 30s I gradually built up to saving the max in my 401k. I didn't understand boglehead principles and spent most everything else, though I did pay off my house by late 30s, sort of by accident. I then took 10 years off from saving at all to go back to school and train for a new career. I also forgot about the 401k. Once working again, I started saving again. 5 years after that 10 year period with no saving for retirement or otherwise, I sure am glad I saved early!!!! That initial nest egg grew by leaps and bounds.

Otherwise I'd be in my 50s (which I am) with almost nothing saved for retirement. As it is, I still have to save like crazy for the next 10 years, hoping I can stay employed, not get disabled, etc.
Last edited by Inframan4712 on Fri May 05, 2017 3:38 pm, edited 1 time in total.

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Re: Why save so much for when you're old?

Post by RadAudit » Fri May 05, 2017 3:37 pm

imareal1 wrote:This is where I'm kind of missing the logic of saving for retirement.


It all has something to do with sleeping under a bridge when you are old and broke.
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Re: Why save so much for when you're old?

Post by Christine_NM » Fri May 05, 2017 3:38 pm

OP - Invest you must. The sooner you start, the less of your lifetime income you need to invest.

PJW -- yes, I too am grateful to my younger self. I didn't know anything, I just saved because no one else would do it for me. Sometimes I wondered if I would be alive at 60 but I see that comment so often here that every saver must feel that way at times.
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Re: Why save so much for when you're old?

Post by Toons » Fri May 05, 2017 3:40 pm

knpstr wrote:Money can buy time or things.

You spend money to buy things.
You save money to buy time.

Money is nothing more than claim checks to use at your own discretion.

If you always spend what you save you must always work for everything you have.
If you invest your money will work for you to make more money.
People have been known to reach a critical mass where their money makes so much money for them they no longer have to work. In this way they bought themselves time to be able to enjoy life and spend money without having to work for it.


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Re: Why save so much for when you're old?

Post by TheTimeLord » Fri May 05, 2017 3:42 pm

imareal1 wrote:My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses.


Good grief at what age do you expect not to have the energy to enjoy life? What are you planning to sit in a Laz-y-Boy recliner for the last 50 year of your life waiting for the "sweet release of death"? I am all for enjoying the entire journey of life not just after you retire but to me it is equally wasteful to only plan to enjoy the first 30 years of life. If you really want to get a good grasp on why you save for retirement go visit some folks in a long term Medicaid facility. trust me Shaw was correct when he said "Youth is wasted on the young."
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Re: Why save so much for when you're old?

Post by triceratop » Fri May 05, 2017 3:43 pm

OP, I am 25 and have been investing since I was 22. I save 40-50% of gross income, because I strongly believe that I will have future liabilities which may not coincide with my continued employment (voluntary or otherwise). You are an actuary, and while I'm not an expert in that particular area of math I have several friends who are on the same career path. Surely you have seen a actuarial table. Conditioning on making it to 65 what do you think your expected lifespan will be (remember that healthcare may improve)? Do you want to work that whole time? I know I don't.

At the same time...I also live adventurously: I go on roadtrips, bicycle adventures, go to dance festivals around the country (and locally!), organize, swim & play tennis, engage in local arts, all while being a full-time student and working on a thesis.

You'll notice I don't save a fixed percentage of income. That's because I don't let something as silly as a budget constrain my life choices. But I structure my overall spending habits so that I save. I can enjoy day to day knowing that a few dollars here or there are not consequential.

There is no reason one's life quality has to be compromised to save. I am happiest when I save more and spend less while having richer experiences.
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Re: Why save so much for when you're old?

Post by Wakefield1 » Fri May 05, 2017 3:45 pm

Perhaps the concept of "saving for retirement" is overdone
Saving and investing for added current (at least while still working) income so as to develop a higher ability to travel or do other things for enjoyment before "retirement"?
There was a thread about "Are we all forgetting our taxable accounts?" a few days ago [O.P. might want to read that one]
I don't like to think that I should have to not invest in taxable accounts because of the big bad tax code-"tax tail wagging the dog"?(Actually that is about all I can do these days because I am retired) And also when I started working the concept of tax deferred retirement investing was still pretty much in the future
I think in the past that the concept of investment wasn't so tightly combined with the concept of retirement (but it sure helps to have invested when you have to retire)
Didn't Mr. Bogle say that you need to invest to try to preserve the purchasing value of the money that you don't have to use up right now?
By the time you reach 45 you might have a significant amount of additional income due to investment returns so your standard of living might be able to be a bit higher with that-although that additional income might end up getting invested instead of spent! :shock:

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Re: Why save so much for when you're old?

Post by NiceUnparticularMan » Fri May 05, 2017 3:46 pm

gouverneur wrote:I do agree with the perspective that depriving oneself in one's 20s may be a mistake because never again will one have as much freedom from obligation (parents not yet too old, not yet obligated to care for children), as much physical vitality, and as much need to experience the broader world and its pleasures -- some of which cost a fair amount of money!


Well, anecdotally . . . .

I first seriously traveled internationally (to Europe) around the same age as the OP, and really liked it. I had very little money and so was staying in hostels, getting calories from free bar snacks, and so on, but it was still a blast.

A little while later I met the woman who would end up my wife, and we started travelling together. Early on we had a bit more money (thanks to her), but still had to cheap out on places to stay and other things (low-budget B&Bs on the outskirts, use public transportation, take food from breakfast to eat for lunch, and so on). It was still a blast.

We've been doing that for almost 20 years now. We've been doing them nicer and nicer (nicer places to stay in the center of town, nicer food, paying for taxis and for organized tours, and so on)--I think it makes the trips a little better, but really just at the margins. The thing is to be on the adventure together in a cool place.

Meanwhile, over time we have had two kids--we just take them with us. Sometimes we travel with other relatives too, and sometimes we help some of our relatives pay for trips, basically because we want them there and yet we don't want to make compromises on what we would do.

All this takes more and more money per trip, of course. But we still love doing it.

Given all this, would it have been smart to spend more on the trips early on, and save less? I'm not really seeing good reason for that. It has ALL been fun, but it does in fact help to have more to spend now, precisely because it ISN'T just us anymore.

As for physical vitality--so far so good for us, but travelling with older relatives . . . I don't think the ideal answer is "stop doing it." I think the ideal answer is "pay a little more to make it easier."

Everyone may be different, of course. But my experience is if you want to have this sort of thing in your life, you don't ever have to stop, and it probably ain't gonna get cheaper (not in ways you would want it to, at least).

Until then, why not spend "lavishly" and see how much one likes it?


Shouldn't you at least try it both ways (live "lavishly" and "frugally" for extended periods and see if you are really happier in the "lavishly" period?).

But generally--I'm not sure you can fairly "experiment" with delayed gratification. The upside by nature only shows up over the long term, and so the most you can learn in the short term is whether or not the extra spending really makes you happier, not what the extra saving would eventually do for you.

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